Oscillators in Forex Trading
What are Oscillators of forex trading and why we need them to use. This is a technical analysis ratio which is used to forecast Forex market. The oscillators are calculated by indicators, using the moving average. In order to calculate Forex oscillators such as price, as well as some of volume indicators are sued.
Although the analysis and use of oscillators best of all are represented at the constant state of market, the time of trend reversal can also be determined by their help.
To identify a trend reversal it’s necessary to understand the concepts of convergence and divergence of the curve oscillator with the direction of price movements
Average True Range (ATR) Oscillators
The Average True Range (ATR) indicator was introduced by Welles Wilder as a tool to measure the market volatility and volatility alone leaving aside attempts to indicate the direction.
Unlike the True Range, the ATR also includes volatility of gaps and limit moves.
The oscillators is good at valuating the market’s interest in the price moves for strong moves and break-outs are normally accompanied by large ranges. The ATR is used with 14 periods with daily and longer time frames and reflects the volatility values that are in relation to the trading instrument’s price.
Low ATR values would normally correspond to a range trading while high values may indicate a trend breakout or breakdown.
Average True Range (ATR) Indicator Calculation Average True Range is a moving average of the True Range which is the greatest of the following three values:
• The distance from today’s high to today’s low.
• The distance from yesterday’s close to today’s high.
• The distance from yesterday’s close to today’s low.
Bollinger Band Oscillators
The Bollinger Bands indicator (named after its inventor) displays the current market volatility changes, confirms the direction, warns of a possible continuation or break-out of the trend, periods of consolidation, increasing volatility for break-outs as well as pinpoints local highs and lows.
The indicator consists of the three moving averages:
• Upper band – 20-day simple moving average (SMA) plus double standard price deviation.
• Middle band – 20-day SMA.
• Lower band – 20-day SMA minus double standard price deviation.
The increasing distance between the upper and the lower bands while volatility is growing, suggests of a price developing in a trend which direction correlates with the direction of the Middle line.
In contrast to the above, at times of decreasing volatility when the bands are closing in, we should be expecting the price to move side wards in a range.
The price moving outside the Bands may indicate either the trend’s continuation (when the bands are floating apart as the volatility increases) or the U-turn of the trend if the initial movement is exhausted. Either way each of the scenarios must be confirmed by other indicators such as RSI, ADX or MACD.
Anyhow the price crossing of the Middle line from below or above may be interpreted as a signal to buy or or to sell respectively.